Proposed Accounting Standards Update

Issued: November 4, 2016

Comments Due: January 6, 2017

Service Concession Arrangements (Topic 853)

Determining the Customer of the Operation Services

a consensus of the FASB Emerging Issues Task Force

a consensus of the FASB Emerging Issues Task Force

The Board issued this Exposure Draft to solicit public comment on proposed changes
to Topic 853 of the FASB Accounting Standards Codification®. Individuals can submit
comments in one of three ways: using the electronic feedback form on the FASB
website, emailing comments to director@fasb.org, or sending a letter to
“Technical Director, File Reference No. EITF-16C, FASB, 401 Merritt 7, PO Box 5116,
Norwalk, CT 06856-5116.”
Notice to Recipients of This Exposure Draft of a Proposed Accounting
Standards Update

The Board invites comments on all matters in this Exposure Draft until January 6,
2017. Interested parties may submit comments in one of three ways:
 Using the electronic feedback form available on the FASB website at
Exposure Documents Open for Comment
 Emailing comments to director@fasb.org, File Reference No. EITF-16C
 Sending a letter to “Technical Director, File Reference No. EITF-16C, FASB,
401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116.”
All comments received are part of the FASB’s public file and are available at
www.fasb.org.

The FASB Accounting Standards Codification® is the source of authoritative

generally accepted accounting principles (GAAP) recognized by the FASB to be
applied by nongovernmental entities. An Accounting Standards Update is not
authoritative; rather, it is a document that communicates how the Accounting
Standards Codification is being amended. It also provides other information to help
a user of GAAP understand how and why GAAP is changing and when the
changes will be effective. A copy of this Exposure Draft is available at
www.fasb.org.

Copyright © 2016 by Financial Accounting Foundation. All rights reserved.

Permission is granted to make copies of this work provided that such copies
are for personal or intraorganizational use only and are not sold or
disseminated and provided further that each copy bears the following credit
line: “Copyright © 2016 by Financial Accounting Foundation. All rights
reserved. Used by permission.”
Proposed Accounting Standards Update

Service Concession Arrangements (Topic 853)

Determining the Customer of the Operation Services

November 4, 2016

Comment Deadline: January 6, 2017

CONTENTS
Page
Numbers

Summary and Questions for Respondents........................................................1–3

Amendments to the FASB Accounting Standards Codification® .......................5–9
Background Information and Basis for Conclusions .................................. …10–16
Amendments to the XBRL Taxonomy .................................................................17
Summary and Questions for Respondents
Why Is the FASB Issuing This Proposed Accounting
Standards Update (Update)?
Stakeholders have observed that there is diversity in practice in how an operating
entity determines the customer of the operation services for transactions within the
scope of Topic 853, Service Concession Arrangements. This proposed Update
would address that diversity.
A service concession arrangement is an arrangement between a public-sector
entity grantor and an operating entity whereby the operating entity will operate the
grantor’s infrastructure (for example, airports, roads, bridges, tunnels, prisons, and
hospitals) for a specified period of time. The operating entity also may maintain the
infrastructure, and it also may be required to provide periodic capital-intensive
maintenance (major maintenance) to enhance or extend the life of the
infrastructure. The infrastructure already may exist or may be constructed by the
operating entity during the period of the service concession arrangement.
In a service concession arrangement within the scope of Topic 853, the operating
entity should not account for the infrastructure as a lease or as property, plant, and
equipment. An operating entity should refer to other Topics to account for various
aspects of a service concession arrangement. For example, an operating entity
should account for revenue relating to construction, upgrade, or operation services
in accordance with Topic 605, Revenue Recognition, or Topic 606, Revenue from
Contracts with Customers. In applying the revenue guidance under Topic 605,
stakeholders have noted that it is not clear who is the customer of the operation
services (that is, the grantor or the third-party users) for certain service concession
arrangements. In turn, this uncertainty has resulted in diversity in practice when
applying certain aspects of Topic 605. Similar issues could also arise under Topic
606.

Who Would Be Affected by the Amendments in This

Proposed Update?
The amendments in this proposed Update would apply to the accounting by
operating entities for service concession arrangements within the scope of Topic
853.

1
What Are the Main Provisions and How Are Those an
Improvement?
To illustrate the main provisions of this proposed Update, consider an example in
which a public-sector entity grantor (government) enters into an arrangement with
an operating entity under which the operating entity will provide operation services
(which include operation and general maintenance of the infrastructure) for a toll
road that will be used by third-party users (drivers). The amendments in this
proposed Update would clarify that the grantor (government), rather than the third-
party drivers, is the customer of the operation services in all cases for service
concession arrangements within the scope of Topic 853. The amendments would
eliminate the diversity in practice that has been observed regarding the customer
determination for the operation services. The amendments would also reduce
complexity and enable more consistent application of other aspects of the revenue
guidance, which are affected by this customer determination.

When Would the Amendments Be Effective?

For an entity that has not adopted Topic 606, the effective date and transition
requirements for the amendments in this proposed Update would be the same as
the effective date and transition requirements for Topic 606 (and any other Topic
amended by Accounting Standards Update No. 2014-09, Revenue from Contracts
with Customers (Topic 606)). Accounting Standards Update No. 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective
Date, defers the effective date of Update 2014-09 by one year.

An entity that elects to early adopt Topic 606 before the finalization of the proposed
amendments would apply the amendments in this proposed Update using either
(1) a modified retrospective approach by recording a cumulative-effect adjustment
to equity as of the beginning of the annual reporting period of adoption or (2) a
retrospective approach.

The Board will determine the effective date of this proposed Update for entities
that early adopt Topic 606, including whether to permit early adoption of the
proposed amendments, after it considers stakeholder feedback on this proposed
Update.

Questions for Respondents

The Board invites individuals and organizations to comment on all matters in this
proposed Update, particularly on the issues and questions below. Comments are
requested from those who agree with the proposed guidance as well as from those
who do not agree. Comments are most helpful if they identify and clearly explain

2
the issue or question to which they relate. Those who disagree with the proposed
guidance are asked to describe their suggested alternatives, supported by specific
reasoning.
Question 1: Do you agree that the customer of the operation services is the
grantor in all cases for service concession arrangements within the scope of Topic
853? Please explain why or why not. If you disagree, please provide any examples
of transactions within the scope of Topic 853 for which the customer of the
operation services would not be the grantor.
Question 2: The Board decided not to require that operating entities provide
disclosures, in addition to the existing GAAP disclosures, about how they
determine the customer of the operation services. Are the disclosures required by
Topic 606 sufficient for these types of arrangements? If not, please suggest other
disclosures that would provide useful information.
Question 3: Do you agree with the proposed effective date and the proposed
transition requirements in paragraph 853-10-65-2 for entities that will not early
adopt Topic 606? Should adoption of the proposed amendments be permitted
before an entity’s adoption of Topic 606? Please explain why or why not.
Question 4: Do you agree with the proposed transition method and the proposed
transition disclosures in paragraph 853-10-65-2 for entities that elect to early adopt
Topic 606 before the finalization of the proposed amendments? Please explain
why or why not.
Question 5: How much time would be needed to implement the proposed
amendments for an entity that early adopts Topic 606 before the finalization of the
proposed amendments? Should the proposed amendments be effective
immediately upon issuance for such entities? Please explain your reasoning.

3
Amendments to the
FASB Accounting Standards Codification®
Introduction
1. The Accounting Standards Codification is amended as described in
paragraphs 2–3. In some cases, to put the change in context, not only are the
amended paragraphs shown but also the preceding and following paragraphs.
Terms from the Master Glossary are in bold type. Added text is underlined, and
deleted text is struck out.

Amendments to Subtopic 853-10

2. Amend paragraph 853-10-25-1, with a link to transition paragraph 853-10-
65-2, as follows:

Service Concession Arrangements—Overall

Overview and Background

853-10-05-1 A service concession arrangement is an arrangement between a

grantor and an operating entity for which the terms provide that the operating entity
will operate the grantor’s infrastructure (for example, airports, roads, bridges,
tunnels, prisons, and hospitals) for a specified period of time. The operating entity
may also maintain the infrastructure. The infrastructure already may exist or may
be constructed by the operating entity during the period of the service concession
arrangement. If the infrastructure already exists, the operating entity may be
required to provide significant upgrades as part of the arrangement. Service
concession arrangements can take many different forms.

853-10-05-2 In a typical service concession arrangement, an operating entity

operates and maintains for a period of time the infrastructure of the grantor that
will be used to provide a public service. In exchange, the operating entity may
receive payments from the grantor to perform those services. Those payments
may be paid as the services are performed or over an extended period of time.
Additionally, the operating entity may be given a right to charge the public (the
third-party users) to use the infrastructure. The arrangement also may contain an
unconditional guarantee from the grantor under which the grantor provides a
guaranteed minimum payment if the fees collected from the third-party users do
not reach a specified minimum threshold. This Topic provides guidance for

5
reporting entities when they enter into a service concession arrangement with a
public-sector grantor who controls or has the ability to modify or approve the
services that the operating entity must provide with the infrastructure, to whom it
must provide them, and at what price (which could be set within a specified range).
The grantor also controls, through ownership, beneficial entitlement, or otherwise,
any residual interest in the infrastructure at the end of the term of the arrangement.

Scope and Scope Exceptions

> Overall Guidance

853-10-15-1 The Scope Section of the Overall Subtopic establishes the scope for
the Service Concession Arrangements Topic.

> Entities

853-10-15-2 The guidance in this Topic applies to the accounting by operating

entities of a service concession arrangement under which a public-sector entity
grantor enters into a contract with an operating entity to operate the grantor’s
infrastructure. The operating entity also may provide the construction, upgrading,
or maintenance services of the grantor’s infrastructure.

853-10-15-3 A public-sector entity includes a governmental body or an entity to

which the responsibility to provide public service has been delegated. In a service
concession arrangement, both of the following conditions exist:

a. The grantor controls or has the ability to modify or approve the services
that the operating entity must provide with the infrastructure, to whom it
must provide them, and at what price.
b. The grantor controls, through ownership, beneficial entitlement, or
otherwise, any residual interest in the infrastructure at the end of the term
of the arrangement.

853-10-15-4 A service concession arrangement that meets the scope criteria in

Topic 980 on regulated operations shall apply the guidance in that Topic and not
follow the guidance in this Topic.

Recognition

853-10-25-1 An operating entity shall account for revenue from service concession
arrangements in accordance with Topic 606 on revenue from contracts with
customers. In applying Topic 606, an operating entity shall consider the grantor to
be the customer of its operation services in all cases for service concession
arrangements within the scope of this Topic. An operating entity shall refer to other

6
Topics, including Topic 606, as applicable, to account for the various other aspects
of a service concession arrangement. For example, an operating entity shall
account for revenue and costs relating to construction, upgrade, or operation
services in accordance with Topic 605 on revenue recognition.

> The Operating Entity’s Rights over the Infrastructure

853-10-25-2 The infrastructure that is the subject of a service concession

arrangement within the scope of this Topic shall not be recognized as property,
plant, and equipment of the operating entity. Service concession arrangements
within the scope of this Topic are not within the scope of Topic 840 on leases, as
indicated in paragraph 840-10-15-9A.

Pending Content:

Transition Date: (P) December 16, 2018; (N) December 16, 2019 | Transition
Guidance: 842-10-65-1

853-10-25-2 The infrastructure that is the subject of a service concession

arrangement within the scope of this Topic shall not be recognized as property,
plant, and equipment of the operating entity. Service concession arrangements
within the scope of this Topic are not within the scope of Topic 842 on leases.

3. Add paragraph 853-10-65-2 and its related heading as follows:

> Transition Related to Accounting Standards Update No. 2017-XX, Service

Concession Arrangements (Topic 853): Determining the Customer of the
Operation Services

853-10-65-2 The following represents the transition and effective date information
related to Accounting Standards Update No. 2017-XX, Service Concession
Arrangements (Topic 853): Determining the Customer of the Operation Services:
a. An entity that has not adopted the pending content that links to paragraph
606-10-65-1 shall adopt the pending content that links to paragraph 853-
10-65-2 at the same time that it adopts the pending content that links to
paragraph 606-10-65-1 and shall apply the same transition method
elected for, and provide the same transition disclosures required by, the
pending content that links to paragraph 606-10-65-1.
b. An entity that has adopted the pending content that links to paragraph
606-10-65-1 before applying the pending content that links to paragraph
853-10-65-2 shall apply the pending content that links to paragraph 853-
10-65-2 for annual reporting periods beginning after [date to be inserted

7
 after exposure], including interim reporting periods within that reporting
period. Early application is [to be inserted after exposure].
c. For the purposes of the transition guidance in (d) through (h):
1. The date of initial application is the start of the reporting period in
which an entity first applies the pending content that links to this
paragraph.
2. A completed contract is a contract for which all (or substantially all)
of the revenue was recognized in accordance with revenue guidance
that is in effect before the date of initial application.
d. An entity described in (b) shall apply the pending content that links to this
paragraph using one of the following two methods:
1. Retrospectively to each prior reporting period presented in
accordance with the guidance on accounting changes in paragraphs
250-10-45-5 through 45-10, subject to (e) and (h).
2. Retrospectively with the cumulative effect of initially applying the
pending content that links to this paragraph recognized at the date
of initial application in accordance with (f) through (h).
e. If an entity elects to apply the pending content that links to this paragraph
retrospectively in accordance with (d)(1), the entity shall provide the
disclosures required in paragraphs 250-10-50-1 through 50-2 in the
period of adoption, except as follows. An entity need not disclose the
effect of the changes on the current period, which otherwise is required
by paragraph 250-10-50-1(b)(2). However, an entity shall disclose the
effect of the changes on any prior periods that have been retrospectively
adjusted.
f. If an entity elects to apply the pending content that links to this paragraph
retrospectively in accordance with (d)(2), the entity shall recognize the
cumulative effect of initially applying the pending content that links to this
paragraph as an adjustment to the opening balance of retained earnings
(or other appropriate components of equity or net assets in the statement
of financial position) of the annual reporting period that includes the date
of initial application. Under this transition method, an entity may elect to
apply the pending content that links to this paragraph retrospectively
either to all contracts at the date of initial application or only to contracts
that are not completed contracts at the date of initial application. An entity
shall disclose whether it has applied the pending content that links to this
paragraph to all contracts at the date of initial application or only to
contracts that are not completed contracts at the date of initial application.
g. For reporting periods that include the date of initial application, an entity
shall disclose the nature of and reason for the change in accounting
principle and provide both of the following disclosures if the pending
content that links to this paragraph is applied retrospectively in
accordance with (d)(2):
1. The amount by which each financial statement line item is affected
in the current reporting period by the application of the pending

8
 content that links to this paragraph as compared with the guidance
that was in effect before the change.
2. An explanation of the reasons for significant changes identified in
(g)(1).
h. Paragraph 606-10-65-1 includes several practical expedients for
transition. An entity shall apply the pending content that links to paragraph
853-10-65-2 in a manner consistent with how the entity applied the
pending content that links to paragraph 606-10-65-1.

The amendments in this proposed Update were approved for publication by the
unanimous vote of the seven members of the Financial Accounting Standards
Board:

Russell G. Golden, Chairman

James L. Kroeker, Vice Chairman
Christine A. Botosan
Daryl E. Buck
R. Harold Schroeder
Marc A. Siegel
Lawrence W. Smith

9
Background Information and
Basis for Conclusions
Introduction
BC1. The following summarizes the Task Force’s considerations in reaching the
conclusions in this proposed Update. It includes the Board’s basis for ratifying the
Task Force conclusions when needed to supplement the Task Force’s
considerations. It also includes reasons for accepting certain approaches and
rejecting others. Individual Task Force and Board members gave greater weight
to some factors than to others.

Background Information
BC2. Current GAAP for transactions within the scope of Topic 853 requires that
operating entities refer to other Topics in accounting for the various aspects of a
service concession arrangement. However, the application of other Topics to the
unique nature of service concession arrangements has recently led to a number
of accounting questions and, in particular, questions about applying Topic 605
when accounting for construction, upgrade, and operation services. In addressing
those questions, some stakeholders have looked to the guidance in International
Financial Reporting Interpretations Committee (IFRIC) Interpretation 12, Service
Concession Arrangements (IFRIC 12) (see paragraphs BC10 through BC12 for
additional information on the accounting guidance provided in IFRIC 12). The
primary accounting question the Task Force decided to address is how to
determine the customer of the operation services in a service concession
arrangement within the scope of Topic 853. Depending on the terms of a service
concession arrangement, some stakeholders have asserted that the third-party
users can be the customer of the operation services, while other stakeholders have
asserted that the grantor is always the customer of the operation services
considering the scope of, and decisions reflected in, Topic 853. This uncertainty
about the customer determination has resulted in diversity in practice in how an
operating entity presents any payments made by the operating entity to the
grantor. It also has added complexity (and in turn has resulted in further diversity
in practice) to the application of other aspects of Topic 605, such as recognizing
revenue for construction services in certain service concession arrangements,
determining whether major maintenance is a separate deliverable, and evaluating
whether major maintenance can be capitalized when it is not a separate
deliverable. Similar accounting issues also could arise under Topic 606.

10
Scope
BC3. The Task Force reached a consensus-for-exposure that the amendments
in this proposed Update should apply to operating entities of service concession
arrangements that are within the scope of Topic 853.

Recognition
Determining the Customer of the Operation Services in a Service
Concession Arrangement

BC4. In a service concession arrangement, an operating entity may provide

construction services when the infrastructure does not exist and may provide
operation services (which include operation and general maintenance of the
infrastructure). Other services also may be provided. It is generally accepted that
the grantor is the customer of any construction services provided by the operating
entity because the construction services create or enhance an asset that the
grantor controls. However, the current lack of guidance in GAAP for operation
services has led to diversity in practice, and some operating entities have looked
to IFRIC 12 for additional guidance. Accordingly, some operating entities have
concluded that the customer of the operation services depends on the terms of the
service concession arrangement, including who bears demand risk (that is, the
ability and willingness of users to pay for the service), which is an evaluation
consistent with IFRIC 12. In contrast, other operating entities have concluded that
the customer of the operation services is the grantor in all cases after considering
the scope of, and decisions reflected in, Topic 853.
BC5. The Task Force reached a consensus-for-exposure that the grantor is the
customer of the operation services in all cases for service concession
arrangements within the scope of Topic 853. Current guidance in Topic 853 states
that both of the following conditions exist in a service concession arrangement:
a. The grantor controls or has the ability to modify or approve the services
the operating entity must provide with the infrastructure, to whom it must
provide them, and at what price.
b. The grantor controls, through ownership, beneficial entitlement, or
otherwise, any residual interest in the infrastructure at the end of the term
of the arrangement.
The infrastructure that is the subject of a service concession arrangement within
the scope of Topic 853 should not be accounted for as a lease or as property,
plant, and equipment by the operating entity. Accordingly, the Task Force
determined that the customer of the operation services is the grantor because the
operating entity is acting as the grantor’s service provider (or outsourcer) to
operate and maintain the infrastructure, which is controlled by the grantor, and the

11
only parties to the executed service concession arrangement are the grantor and
the operating entity.
BC6. One Task Force member noted that the conclusion that the grantor is the
customer of the operation services in all cases is not consistent with IFRIC 12.
That Task Force member observed that IFRIC 12 is similar in scope to Topic 853
and similarly concludes that the infrastructure in a service concession arrangement
should not be accounted for as a lease or as property, plant, and equipment by the
operating entity. Yet, the customer of the operation services could be either the
grantor or the third-party users in IFRIC 12 depending on the terms of the service
concession arrangement, including who bears demand risk. That Task Force
member noted that the grantor’s rights may not constitute control over the services
to be provided. However, that Task Force member also acknowledged that the
Task Force could reach a different conclusion without contradicting IFRIC 12
because GAAP, unlike IFRIC 12, does not currently describe the operating entity’s
role and rights when it has demand risk in these arrangements. Other Task Force
members, while understanding the notion of demand risk, noted that demand risk
does not outweigh the fact that the grantor controls, or has the ability to modify or
approve, the services the operating entity must provide with the infrastructure, to
whom it must provide them, and at what price. Some Task Force members also
observed that demand risk is only an economic variable considered in the
negotiation and pricing of a service concession arrangement; it is not the
determinant of who the customer is for accounting purposes.
BC7. While some Task Force members noted that the way in which the
customer of the operation services is determined might be based on the facts and
circumstances of a particular transaction (in part because service concession
arrangements can take many different forms), the Task Force ultimately decided
that the grantor would be the customer of the operation services in all cases
because the Task Force believes that the operating entity is acting as the grantor’s
service provider and because the only parties to the executed service concession
arrangement are the grantor and the operating entity and the grantor controls or
has the ability to modify or approve the services the operating entity must provide
with the infrastructure, to whom it must provide them, and at what price.

Disclosure

BC8. The Task Force also considered whether to require additional disclosures,
about the identification of the customer of the operation services. Because the
Task Force reached a consensus-for-exposure that the grantor is the customer of
the operation services in all cases, the Task Force decided not to require any
additional disclosures because it would not result in any incremental information
to users.

12
Other Aspects of the Revenue Guidance

BC9. Considering the consensus-for-exposure described in paragraph BC5, the

Task Force noted that it addressed the diversity in practice observed about the
recognition of revenue from construction services in certain service concession
arrangements in which the third-party users were considered the customer of the
operation services by some stakeholders. Accordingly, the Task Force determined
that no additional guidance was necessary for that particular aspect of the revenue
guidance. The Task Force also considered whether it was necessary to clarify
other aspects of the revenue guidance, such as determining whether major
maintenance is a separate deliverable under Topic 605 (or a performance
obligation under Topic 606) or evaluating whether major maintenance can be
capitalized when it is not a separate deliverable (or a separate performance
obligation). The Task Force noted that the clarification provided by the consensus-
for-exposure described in paragraph BC5 addresses the added complexity and
resulting diversity in practice that were created by the uncertainty about the
customer determination and observed in the application of those other aspects of
the revenue guidance. The Task Force noted that sufficient accounting guidance
exists in GAAP (whether in Topic 605 or Topic 606) and, accordingly, concluded
that no further standard setting is necessary.

Comparison with International Financial Reporting

Standards (IFRS)
BC10. As described in paragraph BC6, IFRIC 12 is similar in scope to Topic 853
and similarly concludes that the infrastructure that is the subject of a service
concession arrangement should not be accounted for as a lease or as property,
plant, and equipment by the operating entity. However, IFRIC 12 contains
additional requirements because it clarifies how an operating entity applies certain
aspects of existing IFRS in accounting for various aspects of service concession
arrangements. Under IFRIC 12, the consideration received or to be received by
the operating entity in exchange for construction or upgrade services may result in
the operating entity recognizing a financial asset (as defined under IFRS), an
intangible asset, or a combination of the two. The operating entity recognizes a
financial asset to the extent it receives an unconditional contractual right to receive
cash or another financial asset in return for construction or upgrade services
performed. The operating entity recognizes an intangible asset to the extent it
receives from the grantor the right to charge users for the use of the infrastructure
in return for construction or upgrade services performed. IFRIC 12 requires that an
operating entity recognize both a financial asset and an intangible asset if the
operating entity is paid for the construction or upgrade services partly by a financial
asset and partly by an intangible asset. The IFRS Interpretations Committee noted
that when the operating entity receives an intangible asset in exchange for its
construction services, there are two sets of inflows and outflows rather than one.

13
In the first set, the construction services are exchanged for the intangible asset in
a barter transaction with the grantor. In the second set, the intangible asset
received from the grantor is used up to generate cash flows from users of the public
service.
BC11. The IFRS Interpretations Committee recently discussed a request it
received to clarify how an operating entity accounts for payments it makes to a
grantor in a service concession arrangement within the scope of IFRIC 12, and the
Committee ultimately concluded that the requirements in existing IFRS standards
are sufficient. The IFRS Interpretations Committee also observed that if payments
are not for the right to a separate good or service or a separate right of use that is
a lease, then the operating entity accounts for those payments as follows:
a. If the service concession arrangement results in the operating entity
having only a contractual right to receive cash from the grantor (that is,
the financial asset model applies as described in paragraph 16 of IFRIC
12), the operating entity accounts for those payments as a reduction of
the transaction price, applying the requirements for consideration payable
to a customer in paragraphs 70–72 of IFRS 15.
b. If the service concession arrangement results in the operating entity
having only a right to charge users of the public service (that is, the
intangible asset model applies as described in paragraph 17 of IFRIC 12),
the operating entity has received an intangible asset (that is, the right to
charge the users of the public service) in exchange for construction or
upgrade services and the payments to be made to the grantor.
Consequently, an entity accounts for those payments by applying
International Accounting Standard 38, Intangible Assets.
c. If the operating entity has both a right to charge users of the public service
and a contractual right to receive cash from the grantor (that is, both the
intangible asset model and the financial asset model apply as described
in paragraph 18 of IFRIC 12), the operating entity considers whether
those payments represent payments made for the intangible asset, or
consideration payable to a customer, or both.
BC12. Accordingly, determining the customer in a service concession
arrangement within the scope of IFRIC 12 depends on the nature of the
consideration received by the operating entity (that is, a financial asset, an
intangible asset, or both). Therefore, the consensus-for-exposure reached by the
Task Force concluding that the grantor is the customer of the operation services
in all cases could result in an additional difference in application, in certain
circumstances, between Topic 853 and IFRIC 12.

Effective Date and Transition

BC13. The Task Force reached a consensus-for-exposure that an entity that has
not adopted the amendments in Topic 606 would be required to adopt the

14
amendments in this proposed Update at the same time that it adopts the
amendments in Topic 606 and would apply the same transition method elected for
the application of Topic 606. An entity also would provide the same transition
disclosures required in Topic 606. The Task Force also reached a consensus-for-
exposure that an entity that has adopted the amendments in Topic 606 would apply
the amendments in this proposed Update using either (a) a retrospective approach
or (b) a modified retrospective approach by recording a cumulative-effect
adjustment to equity at the date of initial application. The date of initial application
is the start of the reporting period in which an entity would first apply the
amendments in this proposed Update. The transition disclosures would depend on
which method the entity elects to apply those amendments.
BC14. One Task Force member observed that while the alignment of the effective
date in this proposed Update with the adoption timeline for Topic 606 may cause
a delay in resolving the identified diversity in practice, the costs a reporting entity
would incur to change its revenue accounting twice in a relatively short period of
time would not be justified. That is, an operating entity that currently determines
under Topic 605 that the customer of the operation services is the third-party users
may need to retrospectively adopt the amendments in this proposed Update to
align its accounting under Topic 605 with the amendments in this proposed
Update, only to then perform another retrospective transition upon adoption of
Topic 606 shortly thereafter. Accordingly, the transition provisions in this proposed
Update generally would require an operating entity to perform only one
retrospective transition relating to its accounting for revenues for service
concession arrangements in the near future.
BC15. The Task Force will determine the effective date for entities that have
adopted Topic 606, and whether to permit early adoption of the amendments in
this proposed Update, after it considers stakeholder feedback on the proposed
amendments.

Benefits and Costs

BC16. The objective of financial reporting is to provide information that is useful
to present and potential investors, creditors, donors, and other capital market
participants in making rational investment, credit, and similar resource allocation
decisions. However, the benefits of providing information for that purpose should
justify the related costs. Present and potential investors, creditors, donors, and
other users of financial information benefit from improvements in financial
reporting, while the costs to implement new guidance are borne primarily by
preparers. The Task Force’s assessment of the costs and benefits of issuing new
guidance is unavoidably more qualitative than quantitative because there is no
method to objectively measure the costs to implement new guidance or to quantify
the value of improved information in financial statements.

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BC17. The Task Force does not anticipate that entities would incur significant
costs as a result of the amendments in this proposed Update considering the
alignment of the effective date and transition requirements in this proposed Update
with the effective date and transition requirements in Topic 606. Present and
potential investors, creditors, donors, and others users of financial information
would benefit from this proposed Update because the amendments would result
in more consistent financial reporting of revenue arrangements by operating
entities.

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Amendments to the XBRL Taxonomy
The provisions of this Exposure Draft, if finalized as proposed, would not require
changes to the U.S. GAAP Financial Reporting Taxonomy (Taxonomy). Any
stakeholders who believe that changes to the Taxonomy are required should
provide their comments and suggested changes through ASU Taxonomy Changes
provided at www.fasb.org.

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